Understanding which types of business insurance qualify for tax deductions is essential for managing expenses effectively. The IRS allows most business-related insurance premiums to be deducted as ordinary and necessary business expenses. Below is a breakdown of common deductible types of business insurance.
General Liability Insurance
One tax-deductible expense is general liability insurance, which covers claims including personal injury, property damage, and advertising injuries. Since this type of insurance directly protects a business's operations, its premiums can be claimed on tax returns.
Commercial Property Insurance
Deductible premiums for commercial property insurance—which guards against damage to buildings, machinery, and inventory—cover incidents such as theft, hurricanes, and fires that might compromise the physical resources of the company.
Workers' Compensation Insurance
Workers' compensation insurance is normally required by law and covers employee injuries or illnesses related to their job. Premiums for this type of coverage are fully deductible, as they are considered necessary to maintain compliance and protect employees.
Professional Liability Insurance
Professional liability insurance sometimes referred to as errors and omissions (E&O) insurance, shields companies from lawsuits alleging carelessness or faults in service delivery. Its premiums are deductible because they directly support the business's ability to function without undue risk.
Business Interruption Insurance
Should an unexpected event like a natural disaster cause a company to temporarily close, business interruption insurance compensates lost income and operating expenditures. Premiums for this insurance are deductible since they help sustain the business during downtime.
Cyber Liability Insurance
With the growing risk of cyberattacks, many businesses invest in cyber liability insurance to secure themselves against data breaches and other cyber threats. The IRS recognizes premiums for this type of insurance as deductible expenses.
Commercial Auto Insurance
If a business owns vehicles used for work purposes, the premiums for commercial auto insurance are tax-deductible. This applies to trucks, vans, or cars exclusively used for business activities.
Health and Life Insurance for Employees
Premiums paid for employee health and life insurance as part of benefits packages are deductible. This includes group health plans, dental, vision, and other health-related coverage.
Conclusion
See a tax adviser to maximize deductions; keep proper records of all insurance-related expenses. While guaranteeing sufficient security for your company, claiming applicable premiums as deductions will help greatly lower your total tax load.